Ch 8

What is at the root of effective governance?

Managing risks

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The FCA Financial Crime Guide comprises

2 parts

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A firm would like to ensure it does not commit financial crime. Where can it look for guidance in terms of examples of good and bad practice?

FCA Financial Crime Guide

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Operators of regulated markets, MTFs or OTFs must notify relevant regulator...

When a submission/ request to trade is made

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MAR only applies to executed trades. T or F?

False

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A firm operates automated surveillance based on transactions. In terms of MAR compliance, is that sufficient?

Possibly - they need to consider how unexecuted orders and requests for quotes (RFQs) will be surveilled

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Safe harbours are not subject to MAR. T or F?

True

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Buy-Back Programmes are exempt from...

MAR

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The UK deleted most of its MAD text from its Handbook re market abuse due to MAR. But certain UK legislation elements remained, primarily...

Criminal Justice Act

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MAR and inside dealing cover the following markets

EEA regulated, MTF, OTF

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An auditor of a company is likely to be an insider. True or false?

True

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CJA on inside dealing does not apply to unregulated markets. T or F?

True

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Inside dealing on a UK RIE is covered by CJA inside dealing legislation. T or F?

True

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A new finance director seems to provide the firm with a vital commercial edge and the firm wins a competitive bid once he deals. This situation will not recur and informing the competitor you have used their inside information may lead to a decline in the

Yes

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FSMA Sections 89-91 relate to...

Misleading statements

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An individual expresses that they will buy shares from XDR, but they do not actually intend to do so. They do this to support the price of a new issue of securities for their clients as they fear the market will be volatile otherwise. Is this an offence?

Yes - it is an offence under misleading statements, but with a possible defence

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STOR falls under which legislation?

MAR

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When an individual engages in market abuse, the FCA will...

Remove financial benefit and possibly issue a public censure

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Market abuse of Level 4 or 5 will result in a fine of...

£100,000

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Are CFDs based on securities, interest rates or share indices part of CJA's insider dealing?

Yes

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Are units/ shares in CISs part of CJA's insider dealing?

No

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Are forward forex contracts part of CJA's insider dealing?

No

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A client had been discussing the possibility of purchasing a block of 10,000 shares in XYZ plc with their broker. The client instructs the broker to buy. Clearly, the broker has the unpublished price-sensitive information that the buy order exists before

The defence is that this is market information

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What are the two special defences for market makers?

Acting in good faith relating to market information AND relating to price stabilisation activities

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Angela informed Ralph that the price of one of his stocks is due to increase. She got this information from a director at her company and was instructed not to share it with anyone. Ralph was pleased to hear this as he was planning to sell that stock the

A general defence

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Angela informed Ralph that the price of one of his stocks is due to increase. She got this information from a director at her company and was instructed not to share it with anyone. Ralph was pleased to hear this as he was planning to sell that stock the

The general defence that she did not expect any person to deal because of the disclosure; but she may still be charged for the offence of disclosing

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Jeff works for a company that continuously buys and sells shares (i.e. a market maker). He holds unpublished information relating to a stock owned by the company that he has been instructed to sell. Under the CJA insider dealing legislation, can Jeff stil

Yes - as he is acting under the special defence of a market maker and is able to deal whilst holding inside informaiton

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What is a market maker?

A person who continuously is willing to deal on own account by buying and selling financial instruments against his proprietary capital at prices defined by him. [c]

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Peter has informed his financial adviser that he is considering selling a share in Alpha plc at £4,050. Can his financial adviser be charged with insider dealing?

Yes - but he can use the market information defence (special defence)

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How does the FCA prefer to prosecute?

The criminal justice system

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Peter has informed his financial adviser that he is considering selling a share in Alpha plc at £4,050. His financial advisor realises that this will lead to a drop in the prices of Alpha plc and so straight away sells his own shares in the company. Can h

Yes - as front-running/ pre-positioning

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The following a relevant factors for judging if market makers act in good faith/ for legitimate business (also relevant for firms)

Extent to which action is to hedge a risk [c]

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Jessica has informed her financial adviser that he would like to buy a share in Beta plc at £38. Her advisor decides to aggregate her order with Ben's in order to obtain a better value-for-money. He uses the information relating to both clients' wish to b

He has not committed insider dealing and the relevant factors relating to client order execution can be used to prove this

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Eleasah, a director at ABC plc has lunch with a friend, Davinia. Eleasah tells Davinia that their company has received a takeover offer that is at a premium to the current share price at which it is trading. Davinia enters into a spread-bet, valued by ref

in the context of a takeover, an offeror or potential offeror entering into a transaction in a financial instrument, using inside information concerning the proposed bid

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A director informs an analyst that the stocks of the company are falling and advises him not to share this information with anyone, but that he informed him so that he is aware of the future of the company. What is this an example of?

Unlawful disclosure (MAR)

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Which factors should be considered when deciding if an individual has entered into an abusive squeeze, i.e. which indicate a squeeze? (p. 330)

Extent to which other market users have failed to protect their own interests or fulfil their obligations in a manner consistent with the standards of behaviour to be expected of them in that market

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A trader with a long position in bond futures buys or borrows a large amount of the cheapest to deliver bonds and either refuses to re-lend these bonds or will only lend them to parties they believe will not lend to the market. Their purpose is to positio

Abusive squeeze

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A trader holds a short position that will show a profit if a particular financial instrument falls out of that index. The question of whether the financial instrument will fall out of the index depends on the closing price of the instrument. They place a

Manipulating transactions

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Price-stabilisation activities do not amount to breach of...

Insider dealing and MAR

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Market manipulation is defined under which law?

MAR (EU)

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A defence for market manipulation is?

Accepted market practice

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If the FCA wants to introduce an accepted market practice, who does it need to apply to?

ESMA

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The concepts of PDMRs and CAPs as part of DTR was introduced by which?

MAR

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The current de minimis threshold under MAR for disclosure under DTR is set at 5,000 euros in the UK. MAR allows for competent authorities to increase this to ...

20,000 euros

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PDMRs and CAPs must make disclosures within 3 business days to...

FCA and company (issuer)

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In relation to DTR, the company (issuer) has 3 business days to submit a notification. When does this period start?

From the date of the PDMR/ CAP's transaction

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DTR necessitates PDMRs and CAPs to make disclosures relating to own account dealings (PAD) relating to shares or instruments of the company/ issuer or ones linked to it. SO BASICALLY DTR IS PAD

True

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Under DTR, notification is not required in company's shares does not exceed ___ in a portfolio or undertaking

20%

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The DTR closed period applies to...

PDMRs

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SOCPA amended one part of POCA:

Defence for alleged offenders if they can show that they know/ believe that the conduct was not criminal in the country where it happened. However, the Secretary of State has reserved the right to prescribe certain offences as criminal even if they are le

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Aiden has submitted tax returns in France, which abide French law. His company is UK-based and, had this occurred in the UK, he may be liable under AML regulation. Does he need to report this?

Yes - tax and drug activity need to be reported, despite occurring overseas

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The JMLSG provides guidance on AML. It is provided by UK trade associations and approved by...

HMT

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Layla is trying to launder money so they appear clean. She has moved them to a fund abroad and is planning to also invest in forex. Which stage of ML is she in?

Layering

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Michael advises a client on how they can cleanse their money by investing in a CIS abroad. The CIS will provide great returns for the client and will help to successfully integrate Michael's money into the financial system. The adviser is liable for which

Arrange and failure to disclose

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The failure to disclose offence under POCA (as long as in financial sector) makes an individual liable to what?

5 years in prison and fine

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Is tax evasion a criminal offence?

Yes

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4 MLD introduced the new criminal offence of

An individual who recklessly makes a false/ misleading statement in the context of money laundering is punishable by a fine and/ or two years' imprisonment

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5MLD was in response to

Terrorist events in Europe

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SDD may be used for listed companies, regulated companies and public authorities. It can also be used for certain products/ arrangements with low ML risk. These include

Life assurance, pensions, child trust funds, e-money products

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Under AML Regulation, identification checks (obtaining documents and verifying these) should be completed for the customer..

After first contact

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Who is primarily responsible for ensuring a firm adequately trains staff re AML matters?

MLRO

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What is pure cybercrime, as defined by the NCA?

when a criminal act can only be committed through the use of computers or other ICT devices

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What is cyber-enabled crime, as defined by the NCA?

crimes that may be committed without ICT devices, but are changed by use of ICT in terms of scale and reach

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Are AML controls an indicator of whether the potential harm to consumers and market integrity is likely to have reduced?

Yes

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An action that is designed seriously to interfere or disrupt an electronic system is criminal under what?

Terrorism Act

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Failure to report terrorism or money laundering means an individual is liable to...

5 years prison and/or fine

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Angela accepts £100 from John to give him send him some personal records from the company she works in. For what and why is she liable under the Bribery Act?

Accepting bribery (Section 2) and because she will commit improper behaviour

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Previous q.s said to judge hospitality in relation to bribery by the fair, honest, open, transparent test. Here, book also said to...

To proceed with a case under S1 of the Bribery Act, based on an allegation that hospitality was intended as a bribe, the prosecution would need to show that the hospitality was intended to induce conduct breaches an expectation that a person will act in g

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Is a firm trying to improve its image and establish better relations with a client liable under the Bribery Act?

Likely not

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Section 8 of the Bribery Act defines what a person associated with a commercial organisation means in relation to being liable under Section 7. This may mean...

if a supplier can properly be said to be performing services for a commercial organisation rather than simply acting as the seller of goods, it may also be an associated person

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Under the DPA, who is responsible for implementing security and data breach reporting measures?

Data controllers

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The ICO's max £500,000 penalty is a...

Civil fine (but tougher breaches can lead to criminal prosecution and, thus, unlimited fines)

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GDPR places accountability to demonstrate compliance on who?

Data controllers

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GDPR necessitates some organisations to have a DPO. Who are these?

Certain public authorities and those who monitor data subjects on a large scale

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